What Is Bankruptcy?

 

Bankruptcy is a formal insolvency process.

 

Many view bankruptcy as a last resort. It is a serious route to take. However, bankruptcy may be your fastest and cheapest route out of debt.

 

The bankruptcy process differs in parts of the UK. This page has been written only for residents of England and Wales.

 

 

How Does Bankruptcy Work?

 

• The application fee is to £680.

• You don’t need to attend Court.

• You must apply online. Support is available for those without online access or skills.

• You can pay the fee in instalments.

 

An “adjudicator” looks at your online application. They decide if they will grant your bankruptcy order.

 

The Official Receiver will contact you. They’ll work out if you can pay towards your debts. Your payment might come from:

 

• Your surplus income (money earned in excess of your fair costs and bills).

• Certain assets that you own.

• Money and assets you receive during bankruptcy.

 

Discharge should follow a year later. A write-off of your included debts occurs. A removal of the bankruptcy restrictions takes place.

 

If you are able to make a monthly payment, this will carry on. The payment process runs for three years in total.

 

Isn’t Bankruptcy Expensive?

 

A fee of £680 can be a major barrier. Look at:

 

• Whether you qualify for a Debt Relief Order. The application fee is £90.

• Whether family or friends will help pay the fee.

• Paying the fee in instalments. This can be done online.

• Contacting local advice agencies. They may be able to access grant funding.

 

What Else Might You Have To Pay?

 

The Official Receiver reviews whether you can pay towards your debts.

 

You’ll be asked to provide income and spending details. This may provide bank statements, pay slips, and utility bills.

 

Restricted spending will apply. You should still have enough money to pay bills and other fair spending.

 

If you are told to make a payment, it will last for three years. In an IVA this would be at least five years normally.

 

If you own assets, a requirement for further payment is possible.  A third party can make this payment for you. You may have to sell an asset. An IVA may be more flexible in this respect.

 

You must tell the Official Receiver if you come into money or assets. This could include, for example, an inheritance. Such money or assets will often be used to help pay off your debts.

 

Bankruptcy If You Own Your Home

 

If you own your home, be careful. The Official Receiver will check if equity is present. They want to know if they could obtain money from a sale. If they can obtain money you have two options:

 

• A third party helps you by paying this money.

• The home is sold to get this money.

 

Some say a forced sale of the property cannot happen. This is untrue.

 

A sale can happen if you own the home jointly. A joint owner will receive their share of the money.

 

A sale can also happen if children live with you, but you may get more time.

 

What if you live in a home that’s owned by your partner or spouse?  You may have acquired a “beneficial interest”. If you have paid towards the mortgage this may apply. It's the same if you helped with the deposit, or if you paid for works on the home.

 

What if you own (or part-own) a home that your ex lives in? Without a formal legal transfer in the past, a sale is possible. The asset is still legally yours.

 

Bankruptcy for Vehicle Owners

 

The Official Receiver will consider two main questions:

 

• Do you need the car? Living in a remote area might help. So might a lack of public transport. You may need a vehicle for work reasons. If you can access good public transport links, this may be an issue.

• What's the value of your vehicle? A sale of a high value vehicle is likely. You may get a budget (from the sale) to buy a lower value vehicle.

 

This applies to cars (and other vehicles) that you own. Being the “registered keeper” may not mean you are the owner. For example, a family member could own a car that they let you use.

 

Bankruptcy and Employment

 

Bankruptcy affects few jobs.

 

You cannot be a Company Director if bankrupt.

 

In some professions a regulator may stop (or restrict) your work. Examples are accountants and solicitors. Mortgage brokers and financial advisers may find the same.

 

Some employers have risk-control processes. Financial services workers may find that their contract forbids bankruptcy. Disclosure rules may apply to police, prison officers, and the armed forces.

 

Self-employed persons should careful. Employing others may become harder. Closure of your business is possible, though you might later resume your work.

 

Will I Lose My Pension?

 

If you leave the money in your pension, it should be OK. Bear in mind:

 

• An income from your pension gets no special treatment. It's income, the same as any earnings from work.

• Take a lump sum from your pension and you may have to hand it over.

 

Bankruptcy Myths

 

Some common myths:

 

A van will clear your house. No interest in regular goods like a fridge or TV or sofa exists. This remains true for the tools of your trade. Items that you don't need, of value, may be at risk.

 

Your name will be in the local papers. This is very rare. Your name and other details will be added to the Insolvency Register. This register is online, but someone would have to look to find you.

 

You cannot have a bank account. This is untrue. You may have to move to a new bank. Good “card accounts” are available without credit checks.

 

You'll be on a credit blacklist. Impossible – no credit blacklist exists! A hit to your credit rating will happen. The same is true of all debt solutions. It will be harder to get credit. It may cost more to get credit. Six years from the bankruptcy date, it will stop being on your credit report. You can recover a good credit rating over time.

 

What If You Are Being Made Bankrupt?

 

A creditor owed at least £5,000 can try to make you bankrupt. This is perhaps most common for HMRC, Council Tax, or business debts.

 

If you are at risk of this get expert advice fast.  Other options may exist if you act in time.

 

Who Can Help You With Bankruptcy?

 

Have you decided to apply for your own bankruptcy? We’d suggest that you take expert advice first.

 

Our expert debt advisers can assist you. Get in touch to compare options like an IVA or debt management. We do not provide commercial services to assist with the preparation of a bankruptcy application.

 

Want help submitting an application? A friend, relative, or an approved debt adviser can help you.

 

 

To discuss how to deal with you debts, please contact our advisers.

 

 

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